Fallout: The Financial Crisis

Dodd unveils financial reform bill

Marketplace Staff Mar 15, 2010
Fallout: The Financial Crisis

Dodd unveils financial reform bill

Marketplace Staff Mar 15, 2010


Kai Ryssdal: Eighteen months to the day after Lehman Brothers went under and a couple of trillion dollars in government bailouts and lost private investment later, Senator Christopher Dodd gave us his plan to make sure it never happens again. Actually, that’s not true. In his press conference this morning, Dodd made a point of saying there’s no way to prevent another financial crisis. About the best we can do is make sure it’s a whole lot less painful. We start with Brett Neely in Washington.

BRETT NEELY: Senator Dodd’s message was clear to Karen Petrou at Federal Financial Analytics…

KAREN PETROU: He is determined to do everything he can, including making compromises with which he is uncomfortable, so that if the legislation falters, it cannot be deemed his fault.

But in an interview after unveiling the plan, the senator said the compromises were worth it.

SENATOR DODD: Mature adults, reasonable people, can reach intelligent compromises on these matters, so the American public will have the benefits of this bill.

Dodd’s bill would create a council of regulators to look out for risky behavior. The Federal Reserve would see its powers widened. The strong new consumer protection bureau would be housed there. And the Fed would oversee a wide array of financial firms, including big insurance companies like AIG.

The central bank’s new powers come despite dropping the regulatory ball as the financial bubble formed, says Petrou.

PETROU: The Fed has not covered itself with distinction in the current crisis, but none of the other regulators has either.

One of the most important parts of Dodd’s plan is called “resolution authority.” The idea is to close failing banks without bringing the financial system down. Financial firms would pay a total of $50 billion up front to clean up any future wreckage.

Simon Johnson was chief economist at the IMF. He see a big hole in that proposal.

SIMON JOHNSON: The key issue is the resolution authority is a U.S. resolution authority. The big banks we’re worried about, these are cross-border.

Johnson, who’s written the new book “13 Bankers,” says bank lobbying has gutted much of the overall proposal.

For example, shareholders would get to vote on executive pay, but the vote would be non-binding.

JOHNSON: Rearranging the chairs on the regulatory Titanic is largely the point of this exercise.

The Senate Banking Committee will start work on the bill next week. Then Dodd’s fellow senators will get a chance to prove whether they’re as mature and reasonable as he hopes.

In Washington, I’m Brett Neely for Marketplace.

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